Pimco Total Return ETF Launches at a Bad Time

by Jeff Reeves | March 5, 2012 7:00 am

Bill Gross, the bond king behind Pimco, has finally jumped into the exchange-traded fund space with last Thursday’s launch of the PIMCO Total Return ETF (NYSE:TRXT[1]). The theory is to bring the power of Pimco’s Total Return A (MUTF:PTTAX[2]) mutual fund to investors via an exchange-traded fund — and to collect a pretty penny in fees as Gross does it.

The expense ratio of the ETF is actually very respectable — with total expenses of 0.59% for the fund, according to the Pimco Investor Kit[3]. The Total Return A mutual fund has an 0.85% ratio (excluding the front-end load).

Gross told Bloomberg[4] that the new ETF is “really a mom-and-pop type of thing from my standpoint.” But the reality is that many Pimco funds are already available to investors via their IRA or with a reasonable buy-in of around $2,500, the investment wherewithal of Gross & Co. Hardly sounds like an elitist fund.

Of course, Gross also admitted to Bloomberg that perhaps PIMCO’s Total Return Fund is maybe a little too big, which may hurt performance. So maybe this is a way for small-time investors to get into a fund without worrying about being late to the train.

Presuming that TRXT can deliver results that live up to Gross’s historic track record.

That’s the billion-dollar question, of course. Because Gross also went on to say that he’s a little leery of making his age-old demand that his funds turn 12% profits. Considering the economic environment, those kind of returns may not be realistic.

Here’s what he had to say about the bond market’s movement over the last few decades:

“We’ve had a 30-year run from 1981 when Treasuries started at 14.5% on the 30-Year down to 3% or above 3% now. That has produced what we called and labeled in our fund Total Return. That being yield plus capital appreciation. When you get down to the bottom in terms of yield, then the price gains and the capital gain additions that have, to a certain extent, not falsely acclimated bond investors but provided a little bit of an illusion for the past 30 years. It starts to reverse so you want to become defensive as opposed to offensive. You want to protect capital as opposed to expand it.”

In short, the bull market for Treasuries could be coming to a close — and with it, some of Pimco’s pop.

Doesn’t make for an auspicious time to launch this flagship ETF, when you think about it that way.

Jeff Reeves[5] is the editor of InvestorPlace.com. Write him at editor@investorplace.com[6], follow him on Twitter via @JeffReevesIP and become a fan of InvestorPlace on Facebook. Jeff Reeves holds a position in Alcoa, but no other publicly traded stocks.